Appeals Courts Split Over Whether States Can Regulate Kalshi
Ohio and Tennessee can regulate Kalshi's event contracts under state gambling laws, the U.S. Court of Appeals for the 6th Circuit ruled on Friday, September 25, 2026, rejecting the exchange's bid to be exempt from state oversight. Al Jazeera
The decision was unanimous. Judge Julia Smith Gibbons wrote the opinion for the three-judge panel, holding that the two states retain authority over the contracts at issue. Kalshi had argued that because it is authorized to operate its market in all 50 states, Ohio or any other state could not regulate it. The panel rejected that claim. 6th Circuit Opinion
Kalshi is an exchange regulated by the Commodity Futures Trading Commission (CFTC), the federal agency for derivatives markets, where users trade on real-world outcomes. The dispute turns on preemption, the rule for when federal law displaces state law. Here it is whether federal listing and CFTC oversight under the Commodity Exchange Act displace state gaming codes. The CFTC had earlier barred Kalshi from listing Congressional Control Contracts, an order addressed in federal appeals litigation in 2024.
The 6th Circuit ruling follows conflicting appeals decisions. The 9th Circuit in San Francisco ruled Kalshi's event contracts are subject to Nevada gambling laws in KalshiEX, LLC v. Assad. It concluded the Commodity Exchange Act likely does not preempt Nevada's gaming rules for Kalshi's sports event contracts. 9th Circuit Opinion
That Nevada fight also involves Crypto.com, which operates a prediction market platform. A federal appeals court rejected appeals by Kalshi and Crypto.com seeking to stop Nevada from halting their prediction-market operations. CNBC
The 3rd Circuit in Philadelphia reached the opposite result in April, ruling Kalshi's contracts are not subject to New Jersey gambling laws. New Jersey has since asked the U.S. Supreme Court to assess state power to regulate Kalshi sports bets. Reuters
New York sued prediction market Polymarket on September 24, 2026, alleging it operates as an unlicensed gambling operation. Nevada, Massachusetts, Michigan and Washington have won court orders restricting Kalshi's activities, including a judge's order that Kalshi stop offering most of its contracts in Washington state. Bloomberg
A federal appeals court blocked Kalshi from offering sports event contracts on the lands of two California tribes. Reuters In Washington, the Trump administration backs Kalshi and Polymarket as states move to ban prediction markets. PBS Kalshi has published a response to the New York Times about state lawsuits over prediction markets. A letter to the CFTC signed by forty-four parties argued prediction markets have evaded state regulations and failed to pay state taxes. Kalshi
The broader context here is a collision between two regulatory models. One treats event contracts as federally authorized derivatives listed once and offered nationally. The other treats sports and other outcome contracts as wagers subject to state licensing, taxation, consumer protection rules and, in some places, tribal exclusivity. The 6th and 9th Circuits endorsed the second reading for the states before them. The 3rd Circuit endorsed the first.
Looking ahead, the immediate pressure point is Supreme Court review. A direct conflict among regional circuits on federal preemption is the classic reason for the Court to take a case, and New Jersey's petition already frames that question around sports bets. Until the Court acts or Congress clarifies the boundary, exchanges face a patchwork. They can win in one circuit and face injunctions in four states, plus tribal-land carve-outs and fresh attorney-general suits. For states, the 6th Circuit opinion offers a template to assert gambling authority without directly challenging CFTC status. For operators, the risk is fragmented operations, separate compliance and tax exposure in each assertive state, and loss of the single national market that supports liquidity.
